DFMLAnnual- Y09-10

8/2/2019 DFMLAnnual- Y09-10

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Company Information.........................................................................................................4

Mission Statement..............................................................................................................5

Notice of Annual General Meeting .....................................................................................6

Statement under Section 160 ofthe Companies Ordinance,1984 ........................................................................................8

Directors' Report ..............................................................................................................11

Key Operating and Financial Data ...................................................................................15

Statement of Compliance with the Codeof Corporate Governance ................................................................................................16

Review report to the members on statement ofCompliance with best practices of the Code of CorporateGovernance .....................................................................................................................18

Auditors' Report ...............................................................................................................19

Balance Sheet..................................................................................................................20

Profit & Loss Account.......................................................................................................21

Statement Of Comprehensive Income ...........................................................................22

Cash Flow Statement.......................................................................................................23

Statement of Changes in Equity......................................................................................24

Notes to the Financial Statements ...................................................................................25

Pattern of Shareholding ...................................................................................................52

Form of Proxy

CONTENTS


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COMPANY INFORMATION

BOARD OF DIRECTORS

Dewan Mohammad Yousuf Farooqui Chairman Board of Directors

Dewan Asim Mushfiq Farooqui Director

Dewan Abdullah Ahmed Swaleh Managing Director

Dewan Abdul Baqi Farooqui Director

Mr. M.A. Lodhi Director

Mr. Haroon Iqbal Director

Mr. Aziz-ul-Haque Director

CHIEF EXECUTIVE OFFICER

Dewan Mohammad Yousuf Farooqui

PRESIDENT

Farooq Mustafa

COMPANY SECRETARY

Muhammad Naeemuddin Malik

AUDIT COMMITTEE MEMBERS

Dewan Abdul Baqi Farooqui Chairman

Dewan Abdullah Ahmed Swaleh Member Dewan Asim Mushfiq Farooqui Member

Mr. Haroon Iqbal Member

BANKERS

Allied Bank of Pakistan Limited

Askari Bank Limited

Bank Al Falah Limited

Bank Islami Pakistan Limited

Faysal Bank Limited

Habib Bank Limited

KASB Bank Limited

Meezan Bank Limited

My Bank Limited

National Bank of Pakistan

NIB Bank Limited

Pak Oman Investment Company Limited

Silk Bank Limited

Saudi Pak Industrial and Agricultural

Investment Co. (Pvt) Limited

Standard Chartered Bank

The Royal Bank of Scotland Limited

The Bank of Khyber

The Bank of Punjab

United Bank Limited

AUDITORS REGISTERED OFFICE

Feroze Sharif Tariq & Co 7th Floor, Block 'A',

Chartered Accountants Finance & Trade Centre

4/N/4, Block 6, P.E.C.H.S. Off Shahrah -e- Faisal,

Karachi. Karachi.

LEGAL ADVISORS CORPORATE OFFICE

A.K. Brohi & Co 7th & 8th Floor, Block A,

Finance & Trade Centre,

Shahrah-e-Faisal,

Karachi.

TAX ADVISOR REGIONAL OFFICES

Sharif & Co. (Advocates) Lahore3rd Floor, Uni Plaza, Dewan Centre, PIA Tower,

I.I.Chundrigar Road, Karachi. Egerton Road.

SHARES REGISTRAR / Islamabad

TRANSFER AGENT House # 58, F-7/2

BMF Consultants Margalla Road.

Pakistan (Pvt.) Ltd.

A-14, 4th Floor, Trade Center FACTORY

Block 7/8, K.C.H.S., Main Jilaniabad, Budhu Talpur

Shahra-e-Fasial, Karachi-75300 District Sajawal,

Pakistan. Sindh.

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MISSION STATEMENT

4 To be the No. 1 automobile company in Pakistan

4 To assume leadership role in the technological advancement of the industry and to achieve

the highest level of quantitative indigenization.

4 To offer high value, economical and qualitative solutions to address the commuting needs

of a diverse range of customers.

4 To seek long-term and good relations with our suppliers and dealers with fair, honest and

mutually profitable dealings.

4 To be a totally customer oriented company and to achieve Total Customer Satisfaction.

4 To create a work environment, which motivates, recognizes and rewards achievements at

all levels of the organization.

4 To produce environment friendly vehicles.

4 To be a contributing corporate citizen for the betterment of society, and to exhibit a socially

responsible behavior.

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NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the Twelfth Annual General Meeting of Dewan Farooque MotorsLimited ("DFML" or "the Company") will be held on Friday, October 29, 2010, at 11:30 a.m. atDewan Cement Limited Factory Site, at Deh Dhando, Dhabeji, District Malir, Karachi, Pakistan;to transact the following businesses upon recitation from Holy Qur'aan and other religious recitals:

Ordinary Business:

1. To confirm the minutes of the preceding Annual General Meeting of the Company held onThursday, October 29, 2009;

2. To receive, consider, approve and adopt the annual audited financial statements of theCompany for the year ended June 30, 2010, togetherwith the Directors' and Auditors' Reportsthereon;

3. To appoint the Statutory Auditors' of the Company for the ensuing year, and to fix theirremuneration;

4. To consider any other business with the permission of the Chair.

Special Business:

1. To consider and approve short term loans/ advances to certain associated companies in

compliance with the provisions of Section 208 of the Companies Ordinance, 1984.

2. To consider, and if thought appropriate, approve and resolve the passing of Special Resolutionsin respect of alterations to the Articles of Association of the Company.

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Karachi: October 04, 2010

By order of the Board

Muhammad Naeemuddin Malik

Company Secretary

"Statement under Section 160(1)(b) of the Companies Ordinance, 1984, concerning the

Special Business, is attached alongwith the Notice circulated to the members of the

Company, and is deemed an integral part hereof"


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NOTES:

1. The Share Transfer Books of the Company will remain closed for the period from

October 23, 2010 to October 29, 2010 (both days inclusive).

2. Members are requested to immediately notify change in their addresses, if any, at our Shares

Registrar Transfer Agent BMF Consultants Pakistan (Private) Limited, located at 4th Floor,

A-14, Trade Centre, Block 7/8, K.C.H.S., Main Shahrah-e-Faisal, Karachi 75350, Pakistan.

3. A member of the Company entitled to attend and vote at this meeting, may appoint another

member as his/her proxy to attend and vote instead of him/her. Proxies, in order to be effective,

must be received by the Company at the abovesaid address, not less than 48 hours before

the meeting.

4. CDC Account holders will further have to observe the following guidelines, as laid down in

Circular 01 dated January 20, 2000, issued by the Securities and Exchange Commission of

Pakistan:

a) For Attending Meeting:

i) In case of individual, the account holder or sub-account holder, and/or the person whose

securities are in group account and their registration details are uploaded as per the regulations,

shall authenticate his/her identity by showing his/her original National Identity Card (CNIC),

or original passport at the time of attending the meeting.

ii) In case of corporate entity, the Board of Directors' resolution/power of attorney, alongwith the

specimen signature of the nominee, shall be produced (unless it has been provided earlier)

at the time of meeting.

b) For Appointing Proxies:

i) In case of individual, the account holder or sub-account holder, and/or the person whose

securities are in group account and their registration details are uploaded as per the regulations,

shall submit the proxy form as per the above requirements.

ii) Two persons, whose names, addresses, and CNIC numbers shall be mentioned on the form,

shall witness the proxy.

iii) Attested copies of CNIC or passport of the beneficial owners and proxy shall be furnished

alongwith the proxy form.

iv) The proxy shall produce his/her original CNIC or original passport at the time of the meeting.

v) In case of corporate entity, the Board of Directors' resolution/power of attorney, alongwith the

specimen signature of the nominee, shall be produced (unless it has been provided earlier)

along with the proxy form to the Company.

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i) N am es of th e b or ro wi ng , a ss oc ia te d

undertakings, together with the amount of loans

and advances, and their brief financial position

i) Dewan Mushtaq Motor Company (Private) Limited

("DMMC")

Loan/advance amount: Rs. 100 Million

Financial position from the audited accounts for the

year ended June 30, 2009:

Total Assets: Rs. 784,791,415/-

Equity: Rs. (205,952,975/-)

Earning per Share: Rs. (11.67)

Dividend per Share: Nil

Break-up Value per Share: Rs. 12.11

ii) Dewan Motors (Private) Limited ("DMPL")



year ended June 30, 2009:

Total Assets: Rs. 364,932,103/-

Equity: Rs. (528,294,828/-)

Earning per Share: Rs. 4.45


Break-up Value per Share: Rs. (52.83)

iii) Dewan Automotive Engineering Limited ("DAEL")



June 30, 2009:

Total Assets: 1,192,365,000/-

Equity: Rs. (1,210,211,000/-)

Earning per Share: Rs. (23.70)


Break-up Value per Share: Rs. (55.51)

LOANS / ADVANCES

This statement is annexed as an integral part of the Notice of the Twelfth Annual General Meetingof Dewan Farooque Motors Limited ("the Company" or "DFML") to be held on Friday,October 29, 2010, at 11:30 a.m., Dewan Cement Limited Factory Site, at Deh Dhando, Dhabeji,District Malir, Karachi, Pakistan; and sets out the material facts concerning the Special Businessto be transacted at the Meeting.

Special Business

1. To consider and approve short term loans/ advances to certain associated companies in

compliance with the provisions of Section 208 of the Companies Ordinance, 1984.

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STATEMENT UNDER CLAUSE (B) OF SUB-SECTION (1) OF SECTION 160

OF THE COMPANIES ORDINANCE, 1984


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In this regard, the following resolution is proposed to be passed, with or without modification, as

a "SPECIAL RESOLUTION":

"RESOLVED THAT, the company, in accordance with the provisions of Section 208 of the

Companies Ordinance, 1984, Clause III(X) of the Memorandum of Association and the termsand conditions hereby approved in the Twelfth Annual General Meeting of the Company,

be and is hereby authorized and empowered to finance amounts as loans / advances to the

following of its associated companies:

(Rupees in Million)

LOANS/ADVANCES

Borrowing Companies:

Dewan Mushtaq Motor Company (Pvt.) Ltd. 100.0

Dewan Motors (Pvt.) Ltd. 100.0

Dewan Automotive Engineering Limited 700.0

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ii) Details of loans/ advances already provided

iii) Details of loans/advances written off to theborrowing companies

iv) Rate of Interest to be charged on each loan andadvance together-with the particulars of collateralsecurity to be obtained from the borrowingcompanies

v) Period for which these loans and advances willbe made

vi) Terms of repayment or any other terms for loansand advances

vii) Purpose of loans and advances

viii) Benefits likely to accrue to the company andshareholders

LOANS / ADVANCES

The same limits as above, while the amountsoutstanding as at June 30, 2010, are disclosed in Note7 of the attached Notes to the Financial Statementsfor the year ended June 30, 2010

None

1% above the average rate on which the companyhas obtained its own short term borrowings during theperiod.No security is considered necessary as all theborrowing companies are under common managementcontrol.

Upto a maximum period of twelve months

Adjustable within a period of twelve months or as andwhen required by the lending Company.

To accommodate working capital requirements of theborrowing companies.

The company and its shareholders will be benefitedby having a 1% return on the loans and advances,over and above the cost of borrowing of the company.


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2. To consider, and if thought appropriate, approve and resolve the passing of the followingproposed special resolutions in respect of alterations to the Articles of Association ofthe Company.

i). Clause 66 of the Articles of Association of the CompanyThe following is the special resolution proposed in this regard:

"RESOLVED THAT the provisions of Clause 66 of the Articles of Association of theCompany be and are hereby substituted with the following: "A resolution in writingsigned by number of Directors, as would constitute a quorum in a meeting of the Boardof Directors, shall be as valid and effectual as if it has been passed at a meeting of the

Directors duly convened and held"."

Further, for the sake of convenient reference, the following is the Present Vs the ProposedSubstitution of Clause 66 of the Articles of Association of the Company:

"A resolution in writing signed by all the directors forthe time being entitled to receive notice of a meetingof the directors shall be as valid and effectual as if ithad been passed at a meeting of the directors dulyconvened and held."

Present Clause 66 of the Articles of Association

of the Company

"A resolution in writing signed by number of Directors,as would constitute a quorum in a meeting of theBoard of Directors, shall be as valid and effectual asif it has been passed at a meeting of the Directorsduly convened and held".

Proposed substitution of Clause 66 of the Articles

of Association of the Company

ii). Clause 95 of the Articles of Association of the CompanyThe following is the special resolution proposed in this regard:

"RESOLVED THAT the provisions of Clause 95 of the Articles of Association of theCompany be and are hereby substituted with the following: "The Directors shall causeto be kept proper books of account as required under Section 230 and accountingperiod of the Company shall commence on the 1st day of July and end on the 30th dayof June in each year"."

Further, for the sake of convenient reference, the following is the Present Vs the ProposedSubstitution of Clause 95 of the Articles of Association of the Company:

"The Directors shall cause to be kept proper books ofaccount as required under Section 230 and accountingperiod of the Company shall commence on the firstday of July and end on the 30th day of June in eachyear."

Present Clause 95 of the Articles of Association

of the Company

"The Directors shall cause to be kept proper books ofaccount as required under Section 230 and accountingperiod of the Company shall commence on the 1stday of July and end on the 30th day of June in eachyear".

Proposed substitution of Clause 95 of the Articles

of Association of the Company

The Directors of the Company are not directly or indirectly interested with the affairs of theSpecial Business, which nevertheless is intended to streamline the abovesaid provision of

the Articles of Association of the Company with the like provision of the Companies Ordinance,1984, and also acts and benefits to the business convenience of the Company, and its Boardof Directors taken as a whole.

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The Board of Directors of Dewan Farooque Motors Limited is pleased to present its annual reportalong with the Company's audited financial statements for the year ended June 30, 2010 andwelcomes you to the 12th Annual General Meeting.

Financial Overview

The summary of financial performance for the year, along with the comparative figures of financialyear 2009 is as follows:

Year ended Year endedJune 30, 2010 June 30, 2009

(Rupees in thousand)

Gross Sales 1,236,195 1,934,441Gross (loss) (148,423) (825,128)Operating (loss) (362,911) (1,254,336)Net (loss) after tax (437,504) (1,390,034)Reserves (1,636,739) (1,199,235)

Year under review:

Auto sales made a strong recovery during FY10, rising to 141,654 units by an impressive 43%or 42,344 units when compared to last year - highest YoY growth witnessed since FY04. Gradualeconomic recovery, withdrawal of five percent Federal Excise Duty on passenger cars, the benefitof which was passes on to the consumers and revival of auto financing schemes by some banks

at attractive rates were key factors behind improvement in auto sales. To recall, FY09 had beena dismal year for local auto manufacturers as volumes fell by 47% to a 6 year low of 99,310 units.The Federal Government in the last budget has increased the General Sales Tax rate by 1%. Dueto this the prices of the products have increased. The implementation of Reformed General SalesTax is expected very soon and it is expected that the prices will further increase. The Pak Rupeeis continuously depreciating against US Dollar and Japanese Yen which is putting pressure onthe cost of raw material and components. The recent flood in the Country will have an adverseeffect on the automobiles sales. The Government is contemplating to relax conditions for importof used cars which will again be detrimental to the industry.

Due to non availability of banking lines, the sales volume of the Company during the year declinedto 1,379 units. Low production and sales volumes resulted in higher fixed overheads and otherscharges per unit. This has been the main contributing element in financial loss to the company.

The company is operating under tough conditions due to the aforesaid reason and making bestendeavors to survive. To overcome the current financial situation the Company is taking variouscountermeasures and has taken up the matter with the banks. The proposal for re-profiling ofCompany's debts is pending with the banks. In the mean while, inspite of absence of support fromthe banks the company, though at low level, managed to conduct its operations. It is expected thatafter the re-profiling of Company's debts the Company's operations will be normalized.

As explained in note 18.3 to the accounts a number of recovery suits have been instituted byBanks/Financial Institutions alleging default of various group companies which are being successfullydefended by our Counsels, who are all of well repute. The respective counsels have already filedtheir respective reports in respect of litigation being handled by them and all of them are of theopinion that these suits can be successfully defended. It may also be pointed out that there isvested interest working to destabilize our group of companies and are instrumental in bringingabout cartelization in Banks/Financial Institutions to achieve their vested interests and trying toengineer default in repayment of loans etc. We have instituted suits and complaints against themin courts/forums of appropriate jurisdictions.

DIRECTORS REPORT

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It is further stated that the Company has the capacity to bounce back with a little support from thebanking sector and that it has the capability to revive and bring back its operations in full swingwhich will be beneficial for all the investors / banks.

The Auditors have qualified the report due to significance of the matter as referred in Para (a) and(b) of the Auditors Report. The Management has explained the status of the matter in respectivenotes to the financial statements. The Management is fully confident that the company would beable to, finalize the financial restructuring with the lenders and will come out of current situation.

We humbly and gratefully bow our heads before Almighty Allah, the most Gracious and mostMerciful, who has rewarded and blessed your Company with His Innumerable bounties in thesedifficult times.

Statement of Compliance with under Clause XIX of the Code of Corporate Governance:

The financial statements for the year ended June 30, 2010, prepared by the managementof the company, present fairly its state of affairs, the results of its operations, cash flow andchanges in equity;

Proper books of accounts of the company have been maintained;

Appropriate accounting policies have been consistently applied in preparation of financialstatements for the year ended June 30, 2010 and accounting estimates are based onreasonable and prudent judgment.

International Financial Reporting Standards (IFRS) as applicable in Pakistan, have beenfollowed in preparation of financial statements;

The system of internal control is sound in design and has been effectively implemented andmonitored;

The Management has explained their views in detail regarding the going concern ability ofthe company in note 1.1 of the annexed financial statements.

There has been no material departure from the best practice of the corporate governance,as detailed in the listing regulations of the stock exchange of Pakistan;

Summarized key operating and financial data is enclosed with the report;

All taxes have been paid and nothing is outstanding, except as disclosed in note 15 of theannexed audited financial statement;

The fair value of the Provident Fund's Investment as at June 30, 2010 was Rs.38.732(2009: Rs.64.406) million.

The Board of Directors comprise of individuals with diversified knowledge who endeavor tocontribute towards the aim of the Company with the best of their abilities. During the year

seven meetings of the Board were held. The attendance of directors was as follows;

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IF YE GIVE THANKS, I WILL GIVE YOU MORE (AL-QURAN)


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Name of Director No. of meetingsattended

Dewan Mohammad Yousuf Farooqui 7Dewan Asim Mushfiq Farooqui 4Dewan Abdullah Ahmed Swaleh 3Dewan Abdul Baqi Farooqui 5Mrs. Hina Yousuf 3Mr. Haroon Iqbal 7Mr. Aziz-ul-Haque 6Mr. M.A. Lodhi 4

Leave of absence was granted to directors who could not attend Board meetings.

The audit committee comprises of three Non-executive directors.

Auditors:

The present Auditors M/s. Feroze Sharif Tariq & Co. (Chartered Accountants) have retired and

offers themselves for re-appointment.

The Board of Director on recommendation of the Audit committee has recommended the re-

appointment of M/s. Feroze Sharif Tariq & Co. (Chartered Accountants).

Loss per share

The Loss per Share is Rs.4.92

Pattern of Shareholding:

The Pattern of Shareholding of the Company as at June 30, 2010 is included in the Annual Report.

Trading in Company Shares

None of the Directors, CFO, Company Secretary, their spouses and minor children have traded

in the shares of the Company during the year.

Vote of Thanks:

On behalf of the Board, I thank you, the valued shareholders, Federal and Provincial Governments

and their functionaries, banks, development financial institutions, leasing companies, dealers,

vendors and customers for their continued support and patronage.

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The Board would also like to appreciate the valuable services, loyalty and efforts rendered by the

executives, staff members and workers of the Company, during the year under review.

Conclusion:

In conclusion, we bow, beg and pray to Almighty Allah, Rahman-o-Rahim, in the name of his

beloved Prophet, Muhammad, peace be upon him, for continued showering of His blessing,

guidance, strength, health and prosperity to us, our Company, country and nation and also pray

to Almighty Allah to bestow peace, harmony, brotherhood and unity in true Islamic spirit to whole

of Muslim Ummah, Ameen, Summa Ameen.

LO-MY LORD IS INDEED HEARER OF PRAYER (AL-QURAN)

Under / By Authority of Board of Directors

DEWAN MOHAMMAD YOUSUF FAROOQUI

Chief Executive

Karachi: October 04, 2010

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KEY OPERATING AND FINANCIAL DATA

Rs. in '000'

Gross Sales 1,236,195 1 ,934,441 6 ,327,553 8 ,576,807 10,636,130 10,294,211 7 ,685,778 5 ,534,746 4 ,949,508 4 ,024,387 1 ,197,233

Net Sales 1,025,341 1 ,557,016 5 ,282,895 7 ,235,462 9 ,002,633 8 ,785,858 6,587,288 4,695,993 4,256,192 3,389,370 1,001,294

Gro ss ( lo ss) / prof it (14 8,42 3) (82 5,12 8) 1 52,91 2 8 66 ,5 56 1,100 ,4 82 1,04 9,348 7 05,75 4 6 32 ,6 15 3 73 ,4 14 18 4,838 9 7,96 5

Operat in g ( lo ss) / prof it (36 2,911 ) (1,25 4,33 6) (279 ,5 23) 4 60 ,9 31 6 31 ,1 61 67 3,996 4 23,55 4 4 18 ,9 83 2 49 ,7 88 9 5,002 7 7,51 9

(Loss) / profit before tax (432,203) (1,510,059) (578,951) 99,354 317,017 511,322 330,730 209,063 33,942 (13,150) 68,605

(Loss) / profit after tax (437,504) (1,390,034) (399,499) 61,115 191,927 305,950 223,439 139,709 11,942 (31,150) 63,557

Retained Earnings (1,636,739) (1,199,235) 291,708 918,477 865,227 529,939 334,094 110,655 44,349 32,407 63,557

S hare Ca pi ta l 88 9,733 88 9,73 3 7 70,73 3 7 70 ,7 33 7 70 ,7 33 77 0,733 7 34,03 1 7 34 ,0 31 7 34 ,0 31 73 4,031 73 4,03 1

S hareh olders Eq ui ty (74 7,00 6) (47 1,35 9) 1 ,0 62,44 1 1 ,6 89 ,2 10 1,635 ,9 60 1,30 0,672 1,06 8,12 5 8 44 ,6 86 7 78 ,3 80 76 6,438 79 7,58 8

Fixed Assets 1,813,812 1 ,976,154 2 ,160,667 2 ,331,199 2 ,082,160 1 ,885,131 1 ,831,134 1 ,746,875 1 ,701,221 1 ,624,283 272,097

Total Assets 4,204,550 4 ,496,917 5 ,854,924 6 ,892,646 7 ,713,240 6 ,287,290 5 ,102,798 3 ,477,741 3 ,516,853 3 ,476,846 2 ,726,181

Dividend - - - 77,073 115,610 73,403 73,403 - - -

Bonus Shares - - - - - 36,702 - - - -

FINANCIAL ANALYSIS

Profitability Ratios

Gross (Loss) / Profit Margin -14.48% -52.99% 2.89% 11.98% 12.22% 11.94% 10.71% 13.47% 8.77% 5.45% 9.78%

Operating (loss) / profit Margin -35.39% -80.56% -5.29% 6.37% 7.01% 7.67% 6.43% 8.92% 5.87% 2.80% 7.74%

(loss) / profit before tax -42.15% -96.98% -10.96% 1.37% 3.52% 5.82% 5.02% 4.45% 0.80% -0.39% 6.85%

(loss) / profit after tax -42.67% -89.28% -7.56% 0.84% 2.13% 3.48% 3.39% 2.98% 0.28% -0.92% 6.35%

Dividend (% of share capital) 0.00% 0.00% 0.00% 0.00% 10.00% 15.00% 10.00% 10.00% 0.00% 0.00% 0.00%

Return on Investment

(loss) / Earnings per share before tax

(Rs/share) (4.86) (16.97) (7.51) 1.29 4.11 6.63 4.51 2.85 0.46 (0.18) 0.93

(loss) / Earnings per share after tax

(Rs/share) (4.92) (15.62) (5.18) 0.79 2.49 3.97 3.04 1.90 0.16 (0.42) 0.87

Activity Ratios

Sales to Total Assets-Times 0.29 0.43 1.08 1.24 1.38 1.64 1.51 1.59 1.41 1.16 0.44

Sales to Fixed Assets-Times 0.68 0.98 2.93 3.68 5.11 5.46 4.20 3.17 2.91 2.48 4.40

Liquidity Ratios

Current ratio

(excluding current maturity of LTL) 0.62 0.66 1.03 1.15 1.29 1.06 0.94 1.0 1.0 1.0 1.0

Current ratio

(including current maturity of LTL) 0.52 0.58 0.95 1.03 1.05 1.04 0.85 0.75 0.89 - -

Book value per share (Rs) (8.40) (5.30) 13.78 21.92 21.23 16.88 14.55 11.51 10.60 10.44 10.87

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PARTICULARS 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000


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12. The Financial Statements of the Company were duly endorsed by the CEO and the CFO prior

to the presentation before the Audit committee and the Board of Directors, for approval.

13. The directors, CEO and executives do not hold any interest in the shares of the Company,other than that disclosed in the annexed pattern of shareholding.

14. The company has complied with all the corporate and financial reporting requirements of the

Code.

15. The Board has formed an Audit Committee. It comprised of four members, three of them arenon-executive Directors, including its Chairman.

16. The meetings of the Audit Committee were held at least once every quarter prior to the approval

of interim and final results of the Company, and as required by the Code. The terms of referenceof the Committee have been formed and advised to the Committee for compliance.

17. The Board has set-up an effective internal audit function, which reports directly to the Audit

Committee.

18. The statutory auditors of the Company have confirmed that they have been given a satisfactory

rating under the Quality Control Review Program of the Institute of Chartered Accountants ofPakistan, that they or any of the partners of the firm, their spouses and minor children do nothold shares of the Company and that the firm and all its partners are in compliance with

International Federation of Accountants committee (IFAC) guidelines on Code of Ethics asadopted by the Institute of Chartered Accountants of Pakistan.

19. The statutory auditors or the persons associated with them have not been appointed to provide

other services, except in accordance with the listing regulations and auditors have confirmedthat they have observed IFAC guidelines in this regard.

20. All material information as described in clause (xxiii) of the code is disseminated to the Stock

Exchanges and Securities and Exchange Commission of Pakistan in a timely fashion.

21. We confirm that all material principles contained in the code have been compiled with.

Dewan Mohammad Yousuf FarooquiKarachi: October 04, 2010 Chief Executive & Chairman Board of Directors

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REVIEW REPORT TO THE MEMBERS ON THESTATEMENT OF COMPLIANCE WITH BEST PRACTICES

OF THE CODE OF CORPORATE GOVERNANCE

We have reviewed the Statement of Compliance with the best practices contained in the Codeof Corporate Governance prepared by the Board of Directors of Dewan Farooque Motors Limitedto comply with the Listing Regulation No.(s). 37 of the Karachi Stock Exchange, Chapter XI of the

Lahore Stock Exchange and Chapter XIII of the Islamabad Stock Exchange where the companyis listed.

The responsibility for compliance with the 'Code of Corporate Governance' is that of the Boardof Directors of the company. Our responsibility is to review, to the extent, where such compliancecan be objectively verified, whether the 'Statement of Compliance' reflects the status of thecompany's compliance with the provisions of the 'Code of Corporate Governance' and report if itdoes not. A review is limited primarily to inquiries of the company personnel and review of variousdocuments prepared by the Company to comply with the Code.

As part of our audit of the financial statements we are required to obtain an understanding of theaccounting and internal control systems sufficient to plan the audit and develop an effective audit

approach. We have not carried out any special review of the internal control system to enable usto express an opinion as to whether the Board's statement on internal control covers all controlsand the effectiveness of such internal controls.

Further, Sub-Regulation (xiii) of Listing Regulation on 35 (previously Regulation no 37) notifiedby The Karachi Stock Exchange (Guarantee) Limited vide circular KSE/N-269 dated 19 January2009 requires the Management Company to place before the Board of Director for their considerationand approval related party transactions distinguishing between transactions carried out on termequivalent to those that prevail in arm's length transactions and transaction which are not executedat arm's length price recording proper justification for using such alternate pricing mechanism.Further, all such transaction are also required to be separately placed before the audit committee.We are only required and have ensured compliance of requirement to the extent of approval ofrelated party transactions by the Board of Director and placement of such transactions before theaudit committee. We have not carried out any procedures to determine whether the related partytransactions were undertake at arm's length price or not.

Based on our review, nothing has come to our attention which causes us to believe that the'Statement of Compliance' does not appropriately reflect the Company's compliance, in allmaterial respects, with the best practices contained in the Code of Corporate Governance,as applicable to the Company for the year ended June 30, 2010.

Feroze Sharif Tariq & Co.

Place: Karachi (CHARTERED ACCOUNTANTS)Date: October 04, 2010

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Place: KARACHIDated: October 04, 2010

AUDITORS REPORT TO THE MEMBERS

We have audited the annexed Balance Sheet of Dewan Farooque Motors Limited, as at June 30, 2010, and relatedProfit and Loss account, Statement of Comprehensive Income, Cash Flow Statement and Statement of Changes inEquity together with the notes forming part thereof, for the year then ended, and we state that, we have obtained allthe information and explanations which to the best of our knowledge and belief, were necessary for the purpose of ouraudit.

It is the responsibility of the company's management to establish and maintain a system of internal control, and prepareand present the above said statements in conformity with the approved accounting standards and the requirements ofthe Companies Ordinance, 1984. Our responsibility is to express an opinion on these statements based on our audit.

We conducted our audit in accordance with the auditing standards as applicable in Pakistan. These standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the above said statements are freeof any material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the above said statements. An audit also includes assessing the accounting policies and significantestimates made by management, as well as, evaluating the overall presentation of the above said statements. Webelieve that our audit provides a reasonable basis for our opinion and, after due verification, we report that:

a) The company has not made provis ion of markup in i ts f inancial statements amountingto Rs.575.8 Million for the current year and Rs. 340.252 million for last year. Had the provision of markup beenmade in the financial statements, the loss for the current year would be higher by Rs. 575.80 million and accumulatedloss and markup payable would have be higher by Rs. 916.052 million and shareholders' equity would be lowerby same.

b) During the year the company has incurred a net loss of Rs. 437.504 million with out providing the markup as fullydisclosed in note no. 1.1 to the financial statements and para 'a' above of this report during the year ended June30, 2010; and as of that date it has accumulated losses of Rs. 1.636 billion and its Current liabilities exceededits current assets by Rs. 2.150 billion, Lenders (Banks and Financial institutions) of the company have filed suits

to recover amount of Rs. 2.071 billion through sale of hypothecated assets of the company as fully disclosed innote 23.1 to the financial Statements. These conditions indicate the existence of material uncertainty which maycast significant doubt about company's ability to continue as going concern.

c) in our opinion, proper books of account have been kept by the company as required by the Companies Ordinance,1984;

d) in our opinion:

i) the Balance Sheet and Profit and Loss account together with the notes thereon have been drawn up inconformity with the Companies Ordinance, 1984, and are in agreement with the books of account and arefurther in accordance with the accounting policies consistently applied, except for the changes stated in note2.1 to the financial statement, with which we concur;

ii) the expenditure incurred during the year was for the purpose of the Company's business; and

iii) the business conducted, investments made and the expenditure incurred during the year were in accordancewith the objects of the Company;

e) in our opinion, except for the matter discussed in the preceding paragraph (a) and (b) consequently if any adjustmentmay be required to the carrying amounts and classification of assets and liabilities, the financial statements givea true and fair view of the financial position of the company at June 30, 2010 and to the best of our informationand according to the explanations given to us, the Balance Sheet, Profit & Loss Account, statement of Comprehensiveincome, Cash Flow Statement and Statement of Changes in Equity together with the notes forming part thereofconform with approved accounting standards as applicable in Pakistan, and, give the information required bythe Companies Ordinance, 1984, in the manner so required and respectively give a true and fair view of thestate of the Company's affairs as at June 30, 2010 and of the profit its Comprehensive income, Cash flows andChanges in Equity for the year then ended; and

f) In our opinion, "no Zakat was deductible at source under the Zakat and Ushr Ordinance 1980".

19

CHARTERED ACCOUNTANTSAudit Engagement Partner: Mohammad Tariq


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BALANCE SHEETas at June 30, 2010

(Rs. in '000)

Note June 30,

2010

June 30,

2009

ASSETS

NON-CURRENT ASSETS

Property, Plant and Equipment 3 1,828,812 1,991,154Long-term deposits (with leasing companies) 40,261 40,343

CURRENT ASSETS

Stores and spares 4 79,405 82,494Stock-in-trade 5 571,665 746,766Trade debts - considered good 29,700 29,538Short term loans to associated undertakings - considered good 6 892,740 892,740

Advances, deposits, prepayments and other receivables 7 533,496 474,443Investment 8 75,906 122,788Taxation - net 9 28,115 14,905Cash and bank balances 10 124,450 101,746

2,335,477 2,465,420

TOTAL ASSETS 4,204,550 4,496,917

EQUITY AND LIABILITIES

SHARE CAPITAL AND RESERVES

Share Capital

Authorized

100,000,000 (2009: 100,000,000) Ordinary shares of Rs.10 each 1,000,000 1,000,000

Issued, subscribed and paid-up 11 889,733 889,733Impairment loss on investment to be charged in future (note 8.1) - (161,857)Reserves (1,636,739) (1,199,235)

(747,006) (471,359)NON-CURRENT LIABILITIES

Long term loans - secured 12 437,235 666,853Liabilities against assets subject to finance lease 13 4,951 6,803Long term security deposits 18,700 18,700Deferred Liabilities 14 4,696 5,071

CURRENT LIABILITIES

Trade and other payables 15 1,510,453 1,515,293

Accrued markup / profit 16 258,273 264,810Short term finances-secured 17 1,931,596 1,929,585Current maturity of long term loans 742,194 512,576Current maturity of liabilities against assets subject to finance lease 43,458 48,585

4,485,974 4,270,849

CONTINGENCIES AND COMMITMENTS 18

TOTAL EQUITY AND LIABILITIES 4,204,550 4,496,917

The annexed notes from 1 to 36 form an integral part of these financial statements.

20

M.A. LodhiDirector

Dewan Mohammad Yousuf FarooquiChief Executive


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STATEMENT OF COMPREHENSIVE INCOME

for the year ended June 30, 2010

(Rs. in '000)

June 30,2010

June 30,2009

(Loss) for the period (437,504) (1,390,034)

Other comprehensive income / (loss):

Available for sale financial assets:

- Changes in fair value (46,883) (100,909)

- Impairment carried directly in equity - (323,714)

- Impairment loss / (gain) charged to profit and loss 208,740 161,857

Total comprehensive (loss) for the period (275,647) (1,652,800)

The annexed notes from 1 to 36 form an integral part of these condensed interim financial statements.

M.A. Lodhi

Director


Chief Executive

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CASH FLOW STATEMENT


(Rs. in '000)

Note June 30,

2010

June 30,

2009

CASH FLOW FROM OPERATING ACTIVITIES

(Loss) before taxation (432,203) (1,510,059)

Add / (Less) : Depreciation 161,341 181,655Amortization of intangible assets - 2,369Amortization of deferred credit - (1,821)

Gain on disposal of fixed assets (1,155) (3,526)Impairment Loss on Investment - available for sale 208,740 161,857Financial charges 8,920 105,726

377,846 446,260(54,357) (1,063,799)

Decrease in stores & spares 3,089 541Decrease in stock in trade 175,101 487,452(Increase) / Decrease in trade debts (162) 265,233(Increase) / Decrease in advances, deposits, pre-payments &

other receivables (105,520) 111,023Decrease in long term lease deposits 82 -Increase / (Decrease) in trade and other payables (4,836) 94,047(Decrease) in long term security deposits - (2,000)

Tax (paid) (18,511) (23,061)Dividend (paid) (4) 14Financial charges (paid) (14,438) (95,313)Gratuity (paid) (375) (1,884)

34,426 836,052

Net cash flow from operating activities (19,931) (227,747)

CASH FLOW FROM INVESTING ACTIVITIES

Capital expenditure incurred (311) (4,101)Markup received on short term loans to associated undertakings 46,467 63,621Sale Proceeds of fixed assets 2,466 10,487Net cash flow from investing activities 48,622 70,007

CASH FLOW FROM FINANCING ACTIVITIES

Long term loans obtained - 212,000

Long term loans repaid - (14,286)Finance Lease repayments (7,998) (16,588)

Net cash flow from financing activities (7,998) 181,126

NET INCREASE / (DECREASE) IN CASH & CASH EQUIVALENTS 20,693 23,386

CASH & CASH EQUIVALENTS AT BEGINNING OF THE PERIOD (1,827,839) (1,851,225)

CASH & CASH EQUIVALENTS AT END OF THE PERIOD 26 (1,807,146) (1,827,839)


M.A. Lodhi

Director


Chief Executive

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STATEMENT OF CHANGES IN EQUITY


----------------------------------------------------------(Rs. in '000)--------------------------------------------------------------------

Reserves

TotalUnappropriated

profit/ (loss)

Total

Reserves

Impairment losson available forsale investmentto be charged inJan - Dec 2009

Unrealized

gain / (loss) on

available for

sale investment

Balance as at June 30, 2008 770,733 100,909 - 190,799 291,708 1,062,441

Deficit due to impairment invalue of investment - (100,909) - - (100,909) (100,909)

11,900,000 ordinary shars ofRs.10/- each issued as fullypaid shares againstsponsor's loan 119,000 - - - - 119,000

Impairment in value ofinvestment charged to Equity - (323,714) (323,714) (323,714)

Impairment in value of investmentcharged to profit & loss account - - 161,857 - 161,857 161,857

Net loss for the period - - - (1,390,034) (1,390,034) (1,390,034)

Balance as at June 30, 2009 889,733 - (161,857) (1,199,235) (1,361,092) (471,359)

Transfer of Unrealized Gain oninvestment available forSale to Profit & Loss - - 161,857 - 161,857 161,857

Impairment in value of

investment charged to Equity(note 8) - - (208,740) - (208,740) (208,740)

Impairment in value of

investment taken toProfit & Loss Account - - 208,740 - 208,740 208,740

Net loss for the period - - - (437,504) (437,504) (437,504)

Balance as at June 30, 2010 889,733 - - (1,636,739) (1,636,739) (747,006)


Issued,

subscribed

and paid-up

Share Capital

M.A. LodhiDirector

Dewan Mohammad Yousuf FarooquiChief Executive

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NOTES TO THE FINANCIAL STATEMENTS


1. THE COMPANY AND ITS OPERATIONS

Dewan Farooque Motors Limited was incorporated in Pakistan on December 28, 1998 as apublic limited company. The shares of the company are quoted on all the stock exchangesin Pakistan. The registered office of the Company is situated at 7th floor, Block 'A', Financeand Trade Centre, Off - Shahrah-e-Faisal, Karachi.

The Company has entered into separate technical license / collaboration agreements withHyundai Motor Company, Korea and KIA Motors Corporation, Korea. The principal activity

of the Company is the assembly, progressive manufacturing and sales of Hyundai and KIAvehicles in Pakistan.

The Company commenced commercial production through the interim facility fromJanuary 01, 2000. The main facility came into commercial operation from January 01, 2001.

1.1 GOING CONCERN ASSUMPTION

The company incurred Loss after taxation of Rs. 437.504 million during the year endedJune 30, 2010 without charging the financial charges of Rs. 916.052 million (includingmarkup of last year Rs. 340.252 million) as disclosed in note 23.1 to the financialStatements and as of that date it has accumulated losses of Rs. 1.636 billion and itscurrent liabilities exceeded its current asset by Rs. 2.150 billion. Furthermore, the companyhas not Provided mark up on its long and short term borrowings amounting to Rs. 916.052million (including markup of last year Rs.340.252 million). The working capital constraintsresulted in low capacity utilization ultimately leading to gross loss situation. Further theCompany is facing litigations with the lenders (Banks and the financial institutions) asdisclosed in note 18.3 to the financial statements, furthermore, the banks/financialinstitutions have not renewed the facilities/credit limits. These financials have beenprepared under going concern assumption as the aforesaid situation are temporary notpermanent and would reverse in future and company is hopefull that Banks/ financialinstitution will eventually accept the restructuring proposal submitted by the company tolenders. The management is confident that the out come of the litigations filed by thebanks/financial institutions will be finalize in favor of the company.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.1 Statement of compliance

These financial statements have been prepared in accordance with the approved accountingstandards as applicable in Pakistan. Approved accounting standards comprise of suchInternational Financial Reporting Standards(IFRSs) issued by the International AccountingStandards Board as are notified under the provisions of the Companies Ordinance, 1984,and the requirements of the Companies Ordinance, 1984 and the directives issued bythe Securities and Exchange Commission of Pakistan (SECP). Where the requirementsof the Companies Ordinance, 1984 or the directives issued by the SECP differ with the

requirements of IFRS, the requirements of the Companies Ordinance, 1984 or thedirectives issued by the SECP prevail.

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Standards, interpretations and amendments to published approved accounting standards thatare effective in the current year:

IAS 1 (Revised), 'Presentation of financial statements' (effective from January 1, 2009), wasissued in September 2007. The revised standard prohibits the presentation of items of incomeand expenses (i.e., 'non-owner changes in equity') in the statement of changes in equity,requiring 'non-owner changes in equity' to be presented separately from owner changes inequity. All non-owner changes in equity are required to be shown in a performance statements,but entities can choose whether to present one performance statement (the statement ofcomprehensive income) or two statements (the income statement and statement ofcomprehensive income). Where entities restate or reclassify comparative information, theyare required to present a restated statement of financial position as at the beginning comparativeperiod, in addition to the current requirement to present statements of financial position at theend of the current period and comparative period.

The Company has adopted IAS 1 (Revised) and has chosen to present all non-owner changesin equity in a separate statement of comprehensive income along with the income statement(profit and loss account). The adoption of the above standard does not have any significanteffect on the Company's financial statements other than certain increased disclosures.Furthermore, the adoption of this standard neither has any impact on earnings per share nordoes it require the restatement or reclassification of comparative information.

IFRS 7 (amendment) 'Financial instruments: Disclosures': The amendment requires enhanceddisclosures about fair value measurement and liquidity risk. In particular, the amendmentrequires disclosure of fair value measurements by level of a fair value measurement hierarchy.The adoption of the amendment results in additional disclosures, but does not have an impacton the Company's financial position or performance.

IFRS 8, 'Operating segments' was effective from January 1, 2009. IFRS 8 replaces IAS 14,'Segment reporting'. The new standard requires a 'management approach', under whichsegment information is required to be presented on the same basis as that used for internalreporting purposes. Operating segments are determined and presented in a manner consistentwith the internal reporting provided to the chief operating decision-maker. An operatingsegment is a component of the Company that engages in business activities from which itmay earn revenues and incur expenses. The Company has determined operating segmentson the basis of business activities i.e. manufacturing and trading activities.

The adoption of the above standard does not have any significant effect on the Company'sfinancial statements other than certain increased disclosures. Furthermore, the adoption of

this standard neither has any impact on earnings per share nor does it require the restatementor reclassification of comparative information.

IFRS 8 'Operating Segments' (amendments) effective January 1, 2010 has been early adoptedby the Company. Under the amendment, it has been clarified that a measure of segmentassets should be disclosed only if that amount is regularly provided to the chief operatingdecision-maker. Accordingly, segment assets have not been disclosed in these financialstatements are these are not reported to the chief operating decision-maker on a regularbasis.

IAS 19 (Amendment), 'Employee benefits' (effective from January 1, 2009)

The amendment clarifies that a plan amendment that results in a change in the extent to whichbenefit promises are affected by future salary increases is a curtailment, while an amendmentthat changes benefits attributable to past service gives rise to a negative past service cost ifit results in a reduction in the present value of the defined benefit obligation.

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The definition of return on plan assets has been amended to state that plan administrationcosts are deducted in the calculation of return on plan assets only to the extent that such

costs have been excluded from measurement of the defined benefit obligation.

The distinction between short term and long term employee benefit will be based on whetherbenefits are due to be settled within or after 12 months of employee service being rendered.

IAS 37, 'Provisions, contingent liabilities and contingent assets', requires contingent liabilitiesto be disclosed, not recognized. IAS 19 has been amended to be consistent. Previously IAS19 required an entity to recognize certain contingent liabilities in respect of multi-employerplan. Now an entity is required only to disclose information about some contingent liabilities.

The amendment does not have any significant impact on the Company's financial statements.

IAS 36 (Amendment), 'Impairment of assets' (effective from January 1, 2009). As per the newrequirements, where fair value less costs to sell is calculated on the basis of discounted cashflows, disclosures equivalent to those for value-in-use calculation should be made. Theamendment does not have any significant effect on the Company's financial statements.

IAS 38 (Amendment), 'Intangible assets' (effective from January 1, 2009). The amendedstandard states that a prepayment may only be recognized in the event that payment hasbeen made in advance of obtaining right of access of goods or receipt of services. Theamendment does not have any significant effect on the Company's financial statements.

IAS 39 (Amendment), 'Eligible hedged item' (effective from July 1, 2009). The amendmentprohibits designating inflation as a hedge able component of a fixed rate debt. Further, in ahedge of one-sided risk with options, it prohibits including time value in the hedged risk. The

amendment does not have any significant effect on the Company's financial statements.

There are other amendments to the approved accounting standards and interpretations thatare mandatory for accounting periods beginning on or after July 1, 2009 but are considerednot to be relevant or to have any significant effect on the Company's operations and aretherefore not detailed in these financial statements.

Standards, interpretations and amendments to published accounting standards that are notyet effective:

The following standards and amendments to existing standards have been published and aremandatory for the Company's accounting periods beginning on or after July 1, 2010.

IAS 1 (amendment), 'Presentation of financial statements' (effective January 1, 2010). Theamendment is part of the IASB's annual improvements project published in April 2009. Theamendment provides clarification that the potential settlement of a liability by the issue ofequity is not relevant to its classification as current or non current. By amending the definitionof current liability, the amendment permits a liability to be classified as non-current (providedthat the entity has an unconditional right to defer settlement by transfer of cash or other assetsfor at least 12 months after the accounting period) notwithstanding the fact that the entitycould be required by the counterparty to settle in shares at any time. It is not expected tohave a material impact on the Company's financial statements.

IAS 7 (Amendment), 'Statement of cash flows' (effective from January 1, 2010). The amendmentrequires that only expenditures that result in a recognized asset in the statement of financialposition can be classified as investing activities. The amendment is not expected to have anyimpact on the Company's financial statements.

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IAS 18 (Amendment), 'Revenue' (effective from January 1, 2010). The amendmentprovides additional guidance regarding the determination as to whether an entity is acting

as a principal or an agent. The amendment is not expected to have any impact on theCompany's financial statements.

IAS 24 'Related party disclosures' (revised) (effective from January 1, 2011). The revisedstandard simplifies the disclosure requirements for government-related entities and clarifiesthe definition of a related party.

There are other amendments to the approved accounting standards and interpretationsthat are not yet effective but are considered not to be relevant or to have any significanteffect on the Company's operations and are therefore not detailed in these financialstatements.

2.2 Basis of preparation

These accounts have been prepared under the historical cost convention, except thatinvestments classified as Available for sale are remeasured, after initial recognition, atfair value through equity.

The preparation of financial statements in conformity with approved accounting standardsrequire management to make estimates and assumptions that affect the reported amountsof assets and liabilities, income and expenses. It also requires management to exercisejudgment in application of the company's accounting policies. The estimates and associatedassumptions are based on historical experience and various other factors that are believedto be reasonable under the circumstances. These estimates and assumptions are reviewedon an ongoing basis. Revisions to accounting estimates are recognized in the period in

which the estimate is revised if the revision affects only that period, or in the period ofrevision and future periods if the revision affects both current and future periods.

Areas where assumptions and estimates are significant to the financial statements areas follows:

i. Custom duty (note 15.1)ii. Provision for taxation (note 9)

2.3 Tangible fixed assets

Property Plant and Equipment

Owned

These are stated at cost less accumulated depreciation except for freehold land andcapital work in progress which are stated at cost. Cost of certain fixed assets and capitalwork in progress comprises of historical cost and the cost of borrowings during construction/ erection period in respect of specific loans / borrowings.

Depreciation is charged to income using the reducing balance method whereby the costof an asset is written off over its estimated useful life. The rates of depreciation are statedin note 3.1 to the accounts. Depreciation is charged in proportion to the use of assetsin the respective year.

The assets' residual values and useful lives are reviewed at each financial year end, andadjusted , if appropriate, at each balance sheet date.

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Maintenance and normal repairs are charged to income as and when incurred whereasmajor renewals and improvements are capitalized and the assets so replaced, if any, areretired.

Gain or loss on disposal of fixed assets are included in income currently.

Leased

Assets held under finance leases are stated at cost less accumulated depreciation. Theoutstanding obligations under finance leases less financial charges allocated to futureperiods are shown as a liability. Each lease payment is allocated between the liability andfinance costs so as to achieve a constant rate on the finance balance outstanding. Thefinance charge is charged to profit and loss account and is included under finance cost.

Depreciation is charged at the same rates as charged on company's owned assets.

2.4 Investment

The management determines the appropriate classification of the investments, inaccordance with the IFRSs, at the time of purchase depending on the purpose for whichthe investments are acquired and re-evaluate this classification on a regular basis. Theexisting investment of the company has been categorized as available for sale.

Available for sale investments are initially recognized at cost being the fair value of theconsideration given including acquisition charges associated therewith.

After initial recognition, investment which are classified as available for sale are remeasuredat fair value. Unrealized gains and losses on available for sale investments are recognized

in equity till the investment is sold or otherwise disposed off, or until the investment isdetermined to be impaired, at which time the cumulative gain or loss previously reportedin equity is included in income.

2.5 Stores and spares

These are valued at cost determined on weighted average basis. Items in transit arevalued at cost comprising of invoice values plus other charges incurred thereonaccumulated to the balance sheet date.

2.6 Stock-in-trade

Raw materials and Components are valued at cost. Those in transit are stated at invoiceprice plus other charges paid thereon upto the balance sheet date. Cost is determinedon a moving average basis.

Work-in-process is valued at material cost consisting of CKD kits, local vendor parts andconsumables.

CBU (finished goods) in hand are valued at the lower of cost and net realizable value.Cost is determined on moving average basis.

Net realizable value signifies the estimated selling price in the ordinary course of businessless cost necessary to make sale.

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2.7 Trade debts and other receivables

Trade debts and other receivables are recognized and carried at original invoice amount.Those considered irrecoverable are written off and provision is made against thoseconsidered doubtful.

2.8 Staff retirement benefits

The company upto December 31, 2003, was operating an un-funded gratuity schemefor its employees. Provision was made accordingly in the financial statements to coverobligations under the scheme. The Company has fully provided for the liability underthe gratuity scheme as of December 31, 2003.

Effective from January 1, 2004, the company has, in place of gratuity scheme, establisheda recognized provident fund scheme for its permanent employees. Equal contributionsare being made in respect thereof by company and employees in accordance with theterms of scheme.

2.9 Long term loans / Borrowings

Long term loans/ Borrowings are initially recognized at cost. After initial recognitionsame are measured at original recorded amount less principal repayments thereof.

2.10 Taxation

Current

The charge for current taxation is based on taxable income at current rates of taxationafter taking into account tax rebates and credits available, if any, or one half percentof turnover, whichever is higher.

Deferred

Deferred tax is provided, using the liability method, on all temporary differences at thebalance sheet date between the tax bases of assets and liabilities and their carryingamounts. Deferred tax liabilities are recognized for all taxable temporary differences.Deferred tax assets are recognized to the extent that it is probable that taxable profitswill be available against which the deductible temporary differences and unused taxlosses can be utilized.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and

reduced to the extent that it is no longer probable that sufficient taxable profit will beavailable to allow all or part of the deferred tax assets to be utilized.

Deferred tax assets and liabilities are measured at the tax rates that are expected toapply to the period when the assets is realized or the liability is settled, based on taxrates that have been enacted or substantially enacted by the balance sheet date.

2.11 Trade and other payables

Liability for trade and other amounts payable, are carried at cost which is the fair valueof the consideration to be paid in the future for goods and services received.

2.12 Warranty obligations

These are accounted for on the basis of claims lodged on the company.

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2.13 Foreign currency translation

Foreign currency transactions are translated into Pak Rupees at exchange rates prevailing

on the date of transaction. All monetary assets and liabilities in foreign currencies aretranslated at the rate of exchange prevailing at the balance sheet date except for liabilitiescovered under forward exchange contracts, if any, which are translated at the contractedrates. Exchange differences on foreign currency translations are included in income alongwith any related hedge effects.

The financial statements are presented in Pak Rupees, which is the Company's functionaland presentation currency.

2.14 Borrowing costs

Borrowing Costs are recognized initially in fair value net of transaction costs incurred.

Borrowing cost directly attributable to the acquisition, construction or production of qualifyingassets, which are assets that necessarily take a substantial period of time to get ready fortheir intended use, are added to the cost of those assets until such time the assets aresubstantially ready for their intended use. All other borrowing costs are charged to incomein the period in which they are incurred.

2.15 Financial instruments

2.15.1 Financial assets

2.15.1.1 Classification

The management determines the appropriate classification of its financial assetsin accordance with the requirements of International Accounting Standard 39 (IAS39) "Financial Instruments: Recognition and Measurement" at the time of purchaseof financial assets and re-evaluates this classification on a regular basis. Thefinancial assets of the company are categorized as follows:

a) At fair value through profit or loss

Financial assets that are acquired principally for the purpose of generatingprofit from short term fluctuations in prices are classified as "financial assetsat fair value through profit or loss' category.

b) Loans and receivables

These are non-derivatives financial assets with fixed or determinable paymentsthat are not quoted in an active market. The company's loans and receivablescomprise of trade debts, loan and advances, deposits, cash and bank balancesand other receivables in the balance sheet.

c) Held to maturity

These are financial assets with fixed or determinable payments and fixedmaturity with the company having positive intent and ability to hold to maturity.


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d) Available for sale

Financial assets intended to be held for an indefinite period of time, which may be

sold in response to needs for liquidity or changes in equity prices, are classified as'available for sale'. Available for sale financial instruments are those non-derivativefinancial assets that are designated as available for sale or are not classified as(a) loans and receivables (b) held to maturity (c) financial assets at fair value throughprofit or loss.

2.15.1.2 Initial recognition and measurement

All financial assets are recognized at the time the company becomes a party to thecontractual provisions of the instrument. Financial assets are initially recognized at fairvalue plus transaction costs except for financial assets carried at fair value through profitor loss. Financial assets carried at fair value through profit or loss are initially recognized

at fair value and transaction costs associated with these financial assets are takendirectly to the profit and loss account.

2.15.1.3 Subsequent measurement

Subsequent to initial recognition, financial assets are valued as follows:

a) 'Financial asset at fair value through profit or loss' & 'available for sale'

Financial assets at fair value through profit or loss' are marked to market using theclosing market rates and are carried on the balance sheet at fair value. Net gainsand losses arising on changes in fair values of these financial assets are taken tothe profit and loss account in the period in which these arise.

b) 'Loans and receivables' & 'held to maturity'

Loans and receivables and held to maturity financial assets are carried at amortizedcost.

2.15.1.4 Impairment

The company assesses at each balance sheet date whether there is objective evidencethat a financial asset is impaired. Impairment loss on all financial assets is recognizedin the profit and loss account. In arriving at the provision in respect of any diminutionin long-term financial assets, consideration is given only if there is a permanent impairment

in the value of the financial assets.

2.15.1.5 Offsetting of financial assets and liabilities

Financial assets and financial liabilities are offset and the net amount is reported in thefinancial statements, when there is a legally enforceable right to set off the recognizedamounts and there is an intention to settle on a net basis, or realize the assets andsettle the liabilities simultaneously.

2.15.2 Financial liabilities

All financial liabilities are recognized at the time when the company becomes a party

to the contractual provisions of the instrument.


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2.15.3 Derecognition

Financial assets are derecognised at the time when the company loses control of

the contractual rights that comprise the financial assets. Financial liabilities arederecognised at the time when they are extinguished i.e. when the obligationspecified in the contract is discharged, cancelled, or expires. Any gain or loss onderecognition of financial assets and financial liabilities is taken to the profit andloss account.

2.16 Impairment

The carrying amounts of the Company's assets except for inventories and deferred taxassets are reviewed at each balance sheet date to determine whether there is any indicationof impairment loss. If any such indication exists, the asset's recoverable amount is estimatedin order to determine the extent of the impairment loss, if any. Impairment losses arerecognized as expense in profit and loss account.

2.17 Revenue recognition

Sales are recognized as revenue when goods are invoiced to customers.

Return on bank deposits are on an accrual basis.

Markup on loan to associated undertaking is recognized on an accrual basis.

Agency commission is recognized when shipments are made by the principal.

Unrealized gains / loss arising on re-measurement of investments classified as "financialassets at fair value though profit or loss" are included in the profit and loss account in theperiod in which these arise.

Realised capital gains / loss on sale of investments are recognized in the profit and lossaccount at the time of sale.

2.18 Cash and cash equivalents

Cash and cash equivalents are carried in the balance sheet at cost. For the purpose of thecash flow statement, cash and cash equivalents comprise cash in hand and at banks andshort term finances. The cash and cash equivalents are subject to insignificant risk of changesin value.

2.19 Related Party transactions and transfer pricing

The Company enters into transactions with related parties on an arm's length basis. Royaltyand fee for technical services are accounted for at the rates mentioned in the respectiveagreements, duly registered with the State Bank of Pakistan.

2.20 Provisions

Provisions are recognized when the company has present obligation, legal or constructive,

as a result of a past event, it is probable that an outflow of resources embodying economicbenefits will be required to settle the obligation and a reliable estimate can be made of theamount of obligation. Provisions are reviewed at each balance sheet date and adjusted toreflect the current best estimate.

2.21 Off setting of financial assets and financial liabilities

Financial assets and liabilities are offset and the net amount is reported in the financialstatements only when the company has a legally enforceable right to offset the recognizedamounts and the company intends either to settle on a net basis or to realize the asset andsettle the liability simultaneously.

2.22 Dividends

Dividends declared after the balance sheet date are recognized as a liability at the time oftheir declaration.


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(Rs. in '000)

Note June 30,2010

June 30,2009

3 PROPERTY, PLANT AND EQUIPMENT

Operating fixed assets 3.1 1,813,812 1,976,154Capital work-in-progress 3.4 15,000 15,000

1,828,812 1,991,154

As at July 1 ,2009Cost 78,033 1,120,983 1,517,244 165,150 250,396 86,482 3,218,288 80,000 55,800 135,800 3,354,088

Accumulated de preciation - 293,778 784,576 62,927 146,477 34,301 1,322,059 26,540 29,336 55,876 1,377,935

Net book value 78,033 827,205 732,668 102,223 103,919 52,181 1 ,896,229 53,460 26,464 79,924 1 ,976,153

Year ended June 30, 2010

Opening net book value 78,033 827,205 732,668 102,223 103,919 52,181 1,896,229 53,460 26,464 79,924 1,976,153

Additions - - - - - 311 311 - - - 311

Disposals

Cost - - - - 2,470 - 2,470 - - - 2,470

Accumulated de preciation - - - - 1,159 - 1,159 - - - 1,159- - - - 1,311 - 1,311 - - - 1,311

Transfer

Cost - - - - 2,015 - 2,015 - (2,015) (2,015) -

Accumulated de preciation - - - - 950 - 950 - (950) (950) -- - - - 1,065 - 1,065 - (1,065) (1,065) -

Depreciat ion for the year - 41,345 73,297 10,223 21,252 5,230 151,347 5,346 4,648 9,994 161,341

Closing net book value 78,033 785,860 659,371 92,000 82,421 47,262 1,744,947 48,114 20,751 68,865 1,813,812

As at June 30, 2010

Cost 78,033 1,120,983 1,517,244 165,150 249,941 86,793 3,218,144 80,000 53,785 133,785 3,351,929


Net book value 78,033 785,860 659,371 92,000 82,421 47,262 1 ,744,947 48,114 20,751 68,865 1 ,813,812

Depreciation rate % per annum 5% 10% 10% 20% 10% 10% 20%

As at July 1 ,2008

Cost 78,033 1,120,983 1,517,244 165,150 256,404 86,410 3,224,224 80,000 59,021 139,021 3,363,245


Net book value 78,033 870,727 814,109 113,582 127,133 57,906 2 ,061,490 59,400 39,777 99,177 2 ,160,667

Year ended June 30, 2009

Opening net book value 78,033 870,727 814,109 113,582 127,133 57,906 2,061,490 59,400 39,777 99,177 2,160,667

Additions - - - - 4,029 72 4,101 - - - 4,101

Disposals

Cost - - - - 13,259 - 13,259 - - - 13,259

Accumulated de preciation - - - - 6,299 - 6,299 - - - 6,299- - - - 6,960 - 6,960 - - - 6,960

Transfer

Cost - - - - 3,222 - 3,222 - (3,222) (3,222) -

Accumulated de preciation - - - - 2,307 - 2,307 - (2,307) (2,307) -- - - - 915 - 915 - (915) (915) -

Depreciat ion for the year - 43,522 81,441 11,358 25,812 5,797 167,930 5,939 7,785 13,724 181,655

Closing net book value 78,033 827,205 732,667 102,224 99,305 52,182 1,891,616 53,461 31,077 84,538 1,976,154

As at June 30, 2009

Cost 78,033 1,120,983 1,517,244 165,150 250,396 86,482 3,218,288 80,000 55,800 135,800 3,354,088


Net book value 78,033 827,205 732,668 102,223 103,919 52,181 1 ,896,229 53,460 26,464 79,924 1 ,976,153

Depreciation rate % per annum - 5% 10% 10% 20% 10% 10% 20%

3.1 The statement of the operating fixed assets is as follows:

Plant and

machinery

Furniture

and

fixtures

Tangible - owned Tangible - leased

TotalSub total Sub totalVehicles

Office

Equipment

Plant and

machineryVehicles

Free hold

landBuildings

(Rupees in 000)---------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------


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3.2 Depreciation charge for the period has been allocated as follows:

Cost of goods manufactured 19.1 138,053 152,168Distribution expenses 20 8,317 10,807Administration and general expenses 21 14,971 18,680

161,341 181,655

-----------------------------(Rs. in '000)-----------------------------

Description Cost AccumulatedDepreciation

BookValue

SaleProceed

Gain/(loss)on

Disposal

Mode ofDisposal

Particulars of Buyers

Motor vehicles579 251 328 579 (251) Company policy Zafarullah Khan (Employee)586 288 298 579 (288) Company policy Ansar Ali Soomro (Employee)

3.3 Particulars of operating assets having a net book value exceeding Rs. 50,000 disposedoff during the period are as follows:

3.4 CAPITAL WORK-IN-PROGRESS

Civil works 15,000 15,00015,000 15,000

(Rs. in '000)

June 30,2010

June 30,2009

4. STORES AND SPARES

Stores 25,251 27,476Spares 54,154 55,018

79,405 82,4945. STOCK-IN-TRADE

Manufacturing stockRaw materials and components 280,814 494,329Work-in-process 131,966 7,556Finished goods 12,973 128,535

425,753 630,420Trading stockVehicles 1,364 6,048Spare parts 36,610 49,670

37,974 55,718In transit 107,938 60,628

571,665 746,766

6. SHORT TERM LOANS TO ASSOCIATED UNDERTAKINGS -Considered good

Dewan Automotive Engineering Limited 693,260 693,260Dewan Mushtaq Motor Company (Private) Limited 99,562 99,562

Dewan Motors (Private) Limited 99,918 99,918892,740 892,740

35


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These represent loans given to associated undertakings carrying markup at 1% above thecost of borrowing of the company. At the end of the period these loans carry markup at therate of 15.910% ( 2009 :16.589%) per annum.

7. ADVANCES, DEPOSITS, PREPAYMENTS AND OTHER RECEIVABLES

Advances - Considered good

Suppliers and contractors 243,461 282,515Employees 2,760 1,813Sales tax 24,739 26,811

270,960 311,139

Deposits

Margin against letters of guarantees 2,050 877Margin against letters of Credit - -Others 9,261 8,293

11,311 9,170

PrepaymentsInsurance 279 -Rent 189 1,232Others 36 455

504 1,687Other receivables

Insurance 1,755 1,581

Markup on loans to associated undertakings (note 6) 248,582 150,236Others 384 630 250,721 152,447 533,496 474,443

8. INVESTMENT - AVAILABLE FOR SALE

Investment in Ordinary shares of Dewan Cement Limited(DCL) - associated undertaking

44,650,273 ordinary shares of Rs. 10 each 446,503 446,503

Unrealized gain on remeasurement of investment to fair valuerecognized in Equity (208,740) -

Impairment in value of investment - taken directly in equity (8.1) - (161,857)

Impairment in value of investment - charged to profit &loss account (161,857) (161,857)

75,906 122,789

Market value (Rupees per share) 1.70 2.75

Percentage of equity held 12.49% 12.49%

(Rs. in '000)

June 30,2010

June 30,2009


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11.1 The shareholders are entitled to receive all distributions including dividends and otherentitlements in the form of bonus and right shares as and when declared by the company.All shares carry one vote per share without restriction.

11.2 Dewan Sugar Mills Limited, an associated company, held 13,650,000 ( 2009: 13,650,000)

Ordinary shares of Rs.10 each at the end of the current period.

(Rs. in '000)

June 30,2010

June 30,2009

Note

8.1 Impairment in value of available for sale investment has been taken directly to equityas per relaxation provided by Securities & Exchange Commission of Pakistan vide itsnotification SRO 150(I)/2009 dated February 13, 2009. The aforesaid treatment is againstthe requirements of International Accounting Standard 39 'Financial Instruments -Recognition and Measurement' (IAS-39). IAS - 39 requires that any impairment in valueof available for sale financial assets should be recognized in profit and loss account forthe period.

8.2 The market price of associated company's share wherein company has investmentshows increasing trend from the date of balance sheet to the date the financial statementswere authorized for issue. The market price of DCL's share as of October 4, 2010 (i.e.the date on which the financial statements were authorised for issue) is Rs.1.50 pershare, thereby decreasing the market value of the investment by Rs.8.93 million.

9. TAXATION

Income tax assessments of the company have been finalized upto and including the tax year

2009 relating to income year ended June 30, 2009 and certain appeals are pending beforethe income tax appellate authorities.

10. CASH AND BANK BALANCES

Cash in hand 570 593Cash at banks in PLS accounts 27,187 25,969Cash at banks in current accounts 10.1 96,693 75,184

124,450 101,746

10.1 During the year one of the bank blocked the Company's current account maintainedwith them. The Company has gone into litigation against this action of the bankdemanding release of the blocked amount. The matter is pending in the High Court ofSindh.

Since the Company is litigation with banks no confirmations have been receivedamounting to Rs.123.751 million.

85,303 85,303 Ordinary shares of Rs.10/- each fully paid in cash 853,031 853,031

3,670 3,670 Ordinary shares of Rs.10/- each, issued as fully

paid bonus shares 36,702 36,702

88,973 88,973 889,733 889,733

(No of Shares in 000)

2010 2009

11. ISSUED, SUBSCRIBED AND PAID-UP-CAPITAL


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(Rs. in '000)

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12. LONG TERM LOANS - secured

From banking companies and other financial institutions

Allied Bank Limited - I 12.1 71,429 71,429Saudi Pak Agricultural and Investment Company - I 12.2 90,000 90,000National Bank of Pakistan 12.3 62,500 62,500NIB Bank ( formerly PICIC) 12.4 110,000 110,000Pak Oman Investment Company Limited 12.5 82,500 82,500Saudi Pak Agricultural and Investment Company - II 12.6 63,000 63,000My Bank Limited 12.7 700,000 700,000

1,179,429 1,179,429

Less:- Current portion shown under current liabilities 12.8 742,194 512,576 437,235 666,853

12.1 The loan carries mark up at the base rate plus 2.5% per annum. Base rate has beendefined as average rate of ASK SIDE of the six months KIBOR. Base rate will be setat the last business day before the installment date for the immediately precedinginstallment. Presently markup on the finance works out to 18.17 % ( 2009 : 18.17 %)per annum

The loan was rescheduled during the year and is to be paid in seven equal monthlyinstallments commencing from June 29, 2008 and ending on December 31, 2008.

This loan is secured by way of parri passu charge over all present and future fixedassets including land, building, plant and machinery of the Company.

12.2 The loan carries mark up at the base rate plus 3.00% per annum. Base rate has beendefined as average ASK rate of the six months KIBOR. Base rate will be set on the lastday of preceding quarter. Presently markup on the finance works out to 16.34% (2009:16.34%) per annum.

The loan is repayable in ten equal semi annual installments, with quarterly markuppayments, commencing from January 26, 2006 and ending on October 26, 2010

The loan is secured by First Pari Passu hypothecation charge and equitable mortgageover fixed assets of the company.

12.3 The finance carries mark up at the base rate plus 2.50% per annum. Base rate hasbeen defined as average rate of ASK SIDE of the six months KIBOR. Base rate will beset on the last day of preceding quarter. Presently markup on the finance works out to15.25% (2009: 15.25%) per annum.

The loan was repayable in eight equal quarterly installments commencing fromJanuary 13, 2006 and ending on October 13, 2007.

The loan was secured by First Pari Passu charge over plant and machinery and equitablemortgage over land and building of the company.


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12.4 The finance carries mark up at the base rate plus 4.00 % per annum. Base rate hasbeen defined as ASK rate of six months KIBOR prevailing on the last business day atthe beginning of each quarterly period. Presently markup on the finance works out to

16.62 % (2009: 16.62 %) per annum.

The finance is repayable in twenty equal quarterly installments commencing fromMarch 30, 2006 and ending on December 30, 2010.

The loan is secured by First Pari Passu charge over all the present and future fixedassets of the company.

12.5 The finance carries mark up at the base rate plus 2.50% per annum. Base rate hasbeen defined as ASK rate of six months KIBOR prevailing on the last day of precedingsemi annual period. Presently markup on the finance works out to 15.53%

(2009 : 15.53 %) per annum.

The finance has been rescheduled and is to be paid in thirty three equal monthlyinstallments commencing from August 31, 2008 and ending on April 30, 2011.

The finance is secured by first charge over fixed assets of the company by way ofhypothecation of plant and machinery and equitable mortgage of land and building ofthe company.

12.6 The loan carries mark up at the base rate plus 3% per annum. Base rate has beendefined as average ASK rate of the six months KIBOR. Base rate will be set first timeon date of disbursement and subsequently on January 1st and July 1st. Presentlymarkup on the finance works out to 18.64% (2009: 18.64%) per annum.

The loan is repayable in ten equal half yearly in

Documents

DFMLAnnual- Y09-10